FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(Mark One)
[ X ]     QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

                    For the quarter ended September 30, 2008

                                       OR

[   ]     TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

              For the transition period from __________ to __________

                 Commission File Number              1-12727
                 -------------------------------------------


                         SENTRY TECHNOLOGY CORPORATION
                         -----------------------------
       (Exact name of small business issuer as specified in its charter)

           Delaware                                  96-11-3231714
           -------------------------------------------------------
    (State or other jurisdiction of                  (I.R.S. Employer
     incorporation  or organization)                 Identification No.)


     1881 Lakeland Avenue, Ronkonkoma, NY                    11779
-------------------------------------------------------      -----
     (Address of principal executive offices)              (Zip Code)


                                  631-739-2000
                                  ------------
              (Registrant's telephone number, including area code)

----------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                       if changed since last report)

Check  whether  the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12  months  (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90  days.

 Yes     X          No
        ----

Indicate  by  check  mark whether the registrant is a large accelerated filer, a
non-accelerated  filer,  or  a  small  reporting company. See the definitions of
"large  accelerated  filer"  and  "small reporting company" in Rule 12b-2 of the
Exchange  Act.


Large accelerated filer                          Accelerated  filer

Non-accelerated filer (Do not check if a small reporting company)

Small reporting company  X
                        ---

Indicate  by check mark whether the registrant is a shell company (as defined in
Rule  12b-2  of  the  Exchange  Act).

  Yes             No      X
                         ----

As  of  November  14,  2008,  there  were  120,743,804  shares  of  Common Stock
outstanding.

<PAGE>


                 SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
                 ----------------------------------------------
                                     INDEX
                                     -----


                                                                   Page No.
                                                                   --------

PART I.   FINANCIAL INFORMATION
-------------------------------

Item 1.  Condensed Consolidated Financial Statements (Unaudited)

     Consolidated Balance Sheets --
     September 30, 2008, and December 31, 2007                          3

     Consolidated Statements of Operations and Comprehensive Loss --
     Three Months Ended September 30, 2008, and 2007
     and Nine Months Ended September 30, 2008, and 2007                 4

     Consolidated Statements of Cash Flows --
     Nine Months Ended September 30, 2008, and 2007                     5

     Notes to Condensed Consolidated Financial
     Statements - September 30, 2008, and 2007                        6 - 14


Item 2.  Management's Discussion and Analysis of Plan of Operation   14 - 20


Item 3.  Quantitative and Qualitative Disclosures about Market Risk     20


Item 4T. Controls and Procedures                                     20 - 21


PART II.   OTHER INFORMATION
----------------------------

Item 6.   Exhibits                                                   21 - 22


Signature                                                              22


<PAGE>


PART I.   FINANCIAL INFORMATION
-------------------------------

Item 1.     Financial Statements
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Par Value Amounts)
(Unaudited)

<TABLE>
<CAPTION>

<S>                                                                  <C>                  <C>

                                                                     SEPTEMBER 30,       December 31,
                                                                        2008                 2007
                                                                     -------------       ------------

                  ASSETS
-------------------------------------------------
Current Assets:
  Cash and cash equivalents                                          $    215             $    256
  Short-term investments                                                  289                  202
  Accounts receivable, less allowance for doubtful
    accounts of $175 in 2008 and $209 in 2007, respectively             1,784                3,014
  Inventory, net                                                        2,997                3,299
  Prepaid expenses and other assets                                       582                  858
                                                                     ---------            ---------
Total current assets                                                    5,867                7,629

PROPERTY AND EQUIPMENT, net                                               525                  634
OTHER ASSETS                                                              244                  269
                                                                     ---------            ---------
  TOTAL ASSETS                                                       $  6,636             $  8,532
                                                                     =========            =========


    LIABILITIES AND STOCKHOLDERS' DEFICIT
------------------------------------------------
Current Liabilities:
  Bank indebtedness, demand loan and revolving line of credit        $  3,986             $  4,551
  Accounts payable                                                        780                1,223
  Accrued liabilities                                                   1,299                1,539
  Obligations under capital leases - current portion                        2                    2
  Deferred income                                                         240                  145
  Convertible debenture                                                 2,000                1,986
                                                                     ---------            ---------
Total current liabilities                                               8,307                9,446

OBLIGATIONS UNDER CAPITAL LEASES - less current portion                     5                    7
DEFFERED TAX LIABILITY                                                    109                  117
                                                                     ---------            ---------
Total liabilities                                                       8,421                9,570

MINORITY INTEREST                                                       1,213                1,200

STOCKHOLDERS' DEFICIT
  Preferred stock, $0.001 par value; authorized 10,000
   (2007 - 10,000) shares; none issued and outstanding
  Common stock, $0.001 par value; authorized 190,000
   (2007 - 190,000) shares; issued and outstanding 120,744
    and 120,744 shares, respectively                                      121                  121
  Additional paid-in capital                                           49,894               49,420
  Accumulated deficit                                                 (53,473)             (52,390)
  Accumulated other comprehensive income                                  460                  611
                                                                     ---------            ---------
Total stockholders' deficit                                            (2,998)              (2,238)
                                                                     ---------            ---------
  TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                        $  6,636             $  8,532
                                                                     =========            =========


The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>

<PAGE>

SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In Thousands, Except Per Share Amounts)


<TABLE>
<CAPTION>

<S>                                                         <C>                <C>                  <C>               <C>
                                                               Three Months Ended                       Nine Months Ended
                                                                   September 30,                           September 30,
                                                             -------------------------               ------------------------
                                                             2008                 2007               2008                2007
                                                                     (Unaudited)                            (Unaudited)
REVENUES:
   Sales                                                   $  3,101            $  3,222             $  8,215          $  7,542
   Service, installation and other revenues                     472                 839                1,429             1,615
                                                            ---------           ---------            ---------         ---------
                                                              3,573               4,061                9,644             9,157

COST OF SALES AND EXPENSES:
   Cost of sales                                              1,818               1,799                4,721             4,175
   Customer service expenses                                    522                 692                1,627             1,632
   Selling, general and administrative expenses                 967               1,403                3,041             3,995
   Research and development                                     142                 165                  435               556
                                                            ---------           ---------            ---------         ---------
                                                              3,449               4,059                9,824            10,358
                                                            ---------           ---------            ---------         ---------
INCOME (LOSS) FROM OPERATIONS                                   124                   2                 (180)           (1,201)
INTEREST EXPENSE, net                                           139                 132                  415               384
NON-CASH AMORTIZATION COSTS RELATED TO FINANCING                172                  89                  460               243
                                                            ---------           ---------            ---------         ---------
LOSS BEFORE INCOME TAXES
   AND MINORITY INTEREST                                       (187)               (219)              (1,055)           (1,828)
INCOME TAX EXPENSE (RECOVERY)                                     9                  (7)                  15               ---
                                                            ---------           ---------            ---------         ---------
LOSS BEFORE MINORITY INTEREST                                  (196)               (212)              (1,070)           (1,828)
MINORITY INTEREST EXPENSE (INCOME)                                8                 (44)                  13               (38)
                                                            ---------           ---------            ---------         ---------
NET LOSS                                                       (204)               (168)              (1,083)           (1,790)
                                                            ---------           ---------            ---------         ---------


OTHER COMPREHENSIVE INCOME (LOSS):
   Foreign currency translation adjustments                     (90)                165                 (151)              375
                                                            ---------           ---------            ---------         ---------
COMPREHENSIVE LOSS                                          $  (294)            $    (3)             $(1,234)          $(1,415)
                                                            =========           =========            =========         =========

LOSS PER SHARE
   Basic and diluted                                        $  (0.00)           $ (0.00)             $ (0.01)          $ (0.01)
                                                            =========           =========            =========         =========

WEIGHTED AVERAGE NUMBER OF
   COMMON SHARES OUTSTANDING
   Basic and diluted                                         120,744             120,744              120,744           120,744
                                                            =========           =========            =========         =========


The accompanying notes are an integral part of these condensed consolidated financial statements.

</TABLE>

<PAGE>
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
<S>                                                                        <C>                 <C>
                                                                                 Nine Months Ended
                                                                                   September 30,
                                                                           -----------------------------
                                                                             2008                 2007
                                                                             ----                 ----
                                                                                    (Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                $(1,083)            $(1,790)
   Adjustments to reconcile net loss
     to net cash provided by (used in) operating activities:
     Depreciation                                                               88                  94
     Amortization of other assets                                               53                  93
     Non-cash consideration
         Stock-based compensation                                               17                  20
         Warrant amortization                                                  446                 213
         Amortization of convertible debenture                                  14                  30
     Minority interest expense (income) of consolidated subsidiary              13                 (38)
   Changes in operating assets and liabilities:
     Accounts receivable                                                     1,092                 (74)
     Inventory                                                                 276                 (31)
     Prepaid expenses and other assets                                         274                (321)
     Accounts payable                                                         (433)                644
     Accrued liabilities                                                      (224)                355
     Deferred income                                                            98                  (7)
                                                                           --------            ---------
   Net cash provided by (used in) operating activities                         631                (812)
                                                                           --------            ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Changes in short-term investments                                          (104)                104
   Purchase of property and equipment                                          (20)                (26)
   Changes in other assets                                                     (29)                 88
                                                                           --------            --------
   Net cash (used in) provided by investing activities                        (153)                166
                                                                           --------            --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net borrowing (repayment) on the demand loan
      and revolving line of credit                                            (361)                354
   Repayment of obligations under capital leases                                (2)                 (2)
                                                                           --------            --------
   Net cash (used in) provided by financing activities                        (363)                352
                                                                           --------            --------

EFFECT OF EXCHANGE RATE CHANGES ON
   CASH AND CASH EQUIVALENTS                                                  (156)                295
                                                                           --------            --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               (41)                  1
CASH AND CASH EQUIVALENTS, beginning of period                                 256                 360
                                                                           --------            --------
CASH AND CASH EQUIVALENTS, end of period                                   $   215             $   361
                                                                           ========            ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid during the period for:
   Interest                                                                $   476             $   310
                                                                           ========            ========
   Income taxes                                                            $   ---             $    87
                                                                           ========            ========

Non-cash financing activity:
Issuance of warrants relating to bank guarantees                           $   457             $   357
                                                                           ========            ========


The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>

SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008, and 2007


NOTE  1  --  Basis  of  Presentation
------------------------------------
The  accompanying  unaudited condensed consolidated financial statements include
the  accounts of Sentry Technology Corporation ("Sentry") and its majority-owned
subsidiaries  (the  "Company").  All intercompany accounts and transactions have
been  eliminated  on  consolidation.

The  interim  financial  information as of September 30, 2008, and for the three
and  nine-month  periods  ended  September 30, 2008, and 2007 have been prepared
without  audit,  pursuant  to  the  rules  and regulations of the Securities and
Exchange  Commission  (the  "SEC"). Certain information and footnote disclosures
normally  included in financial statements prepared in accordance with generally
accepted  accounting  principles have been condensed or omitted pursuant to such
rules  and  regulations,  although  we  believe  that  the  disclosures made are
adequate  to  provide  for fair presentation.  The interim financial information
should be read in conjunction with the consolidated financial statements and the
notes  thereto,  included  in the Company's Annual Report on Form 10-KSB for the
fiscal  year  ended  December  31,  2007,  previously  filed  with  the  SEC.

In  the  opinion  of management, all adjustments (which include normal recurring
adjustments)  necessary  to present a fair statement of financial position as of
September  30,  2008, and results of operations and cash flows for the three and
nine-month  periods  ended  September  30,  2008, and 2007, have been made.  The
interim  results  of  operations are not necessarily indicative of the operating
results  for  the  full  fiscal  year  or  any  future  periods.

Certain prior period amounts have been reclassified to conform to current period
presentation.


NOTE  2  --  Going  Concern
---------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared  in  accordance  with  accounting  principles generally accepted in the
United  States  of  America with the assumption that the Company will be able to
realize  its  assets  and  discharge  its  liabilities  in  the normal course of
business.

The  Company has incurred operating losses and decreased financial position
as  a  result  of  not  meeting  its  business  plan.  The Company had losses of
approximately  $1.1  million  for the nine-month period ended September 30, 2008
(September  30,  2007 - $1.8 million), and as of September 30, 2008, the Company
had  an  accumulated deficit of approximately $53.5 million (December 31, 2007 -
$52.4  million). The Company's continuation as a going concern is uncertain. The
Company  entered  into a Forbearance Agreement on May 29, 2008, with its primary
lenders  who  have  agreed  to  forbear  from  the  exercise of their rights and
remedies  under  the  security  in respect of the indebtedness until October 31,
2008 or earlier in the event of the occurrence of a default in the agreement. As
of October 31, 2008, the Forbearance Agreement with RBC expired. On November 12,
2008,  the  Company  and  RBC extended the Forbearance Agreement to May 15, 2009
with  revised  terms  and  conditions  (see  Notes  5  and  11).  The  Company's
convertible  debenture  holders and Tradition Capital Bank have agreed to extend
maturity to December 31, 2008. Management's plan is to pursue raising additional
funds  through future equity or debt financing to satisfy its commitments to its
primary  lenders  and  meet its obligations to the convertible debenture holders
until  it  achieves  profitable operations. Although the Company plans to pursue
additional financing, there can be no assurance that the Company will be able to
secure  financing  when  needed  or  obtain  such  on  terms satisfactory to the
Company,  if  at all. The Company's continuation as a going concern depends upon
its  ability  to  raise  funds  and  achieve  and sustain profitable operations.

<PAGE>
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008, and 2007


The  accompanying  unaudited  condensed consolidated financial statements do not
include  any  adjustments  to  reflect  the  possible  future  effects  on  the
recoverability  and  classification  of  assets  or  the
amounts  and classification of liabilities that may result from the inability of
the  Company  to  continue  as  a  going  concern.

NOTE  3  --  Recent  Accounting  Pronouncements
-----------------------------------------------

In  April  2008,  the  Financial Accounting Standards Board ("FASB") issued FASB
Staff  Position ("FSP") Statement of Financial Accounting Standards ("SFAS") No.
142-3,  "Determination  of  the  Useful  Life  of  Intangible Assets" ("FSP SFAS
142-3").  FSP  SFAS  142-3  amends  the  factors  that  should  be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible
Assets"  ("SFAS  142").  The  intent  of  this FSP is to improve the consistency
between  the useful life of a recognized intangible asset under SFAS 142 and the
period  of expected cash flows used to measure the fair value of the asset under
FASB  Statement  No. 141 (revised 2007), "Business Combinations," and other U.S.
generally  accepted  accounting principles ("GAAP"). FSP SFAS 142-3 is effective
for  financial  statements  issued for fiscal years beginning after December 15,
2008,  and  interim  periods  within  those  fiscal  years.  The requirement for
determining  useful  lives  must  be  applied prospectively to intangible assets
acquired  after  the  effective  date  and  the  disclosure requirements must be
applied  prospectively to all intangible assets recognized as of, and subsequent
to,  the  effective date. Early adoption is prohibited. The Company is currently
reviewing  the  effect,  if  any;  the  proposed  guidance  will  have  on  its
consolidated  financial  statements.

In  May  2008,  FASB  issued  FSP  Accounting  Principles  Board  ("APB")  14-1,
"Accounting  for  Convertible  Debt Instruments That May Be Settled in Cash upon
Conversion  (Including  Partial Cash Settlement)" ("FSP APB 14-1"). FSP APB 14-1
clarifies  that  convertible  debt  instruments that may be settled in cash upon
conversion (including partial cash settlement) are not addressed by paragraph 12
of  APB  Opinion  No.  14, "Accounting for Convertible Debt and Debt Issued with
Stock  Purchase  Warrants." Additionally, FSP APB 14-1 specifies that issuers of
such  instruments  should  separately  account  for  the  liability  and  equity
components  in  a  manner  that  will  reflect  the entity's nonconvertible debt
borrowing  rate  when interest cost is recognized in subsequent periods. FSP APB
14-1  is  effective  for  financial statements issued for fiscal years beginning
after  December  15,  2008, and interim periods within those fiscal years. Early
adoption  is  not  permitted.  The Company is currently reviewing the effect, if
any;  the  proposed guidance will have on its consolidated financial statements.

In  May  2008,  FASB  issued  SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting  Principles"  ("SFAS  162").  SFAS  162  identifies  the  sources  of
accounting principles and the framework for selecting the principles used in the
preparation  of  financial  statements  of  nongovernmental  entities  that  are
presented  in  conformity with generally accepted accounting principles ("GAAP")
in  the  United  States  (the  GAAP  hierarchy).  SFAS  162 is effective 60 days
following  the  SEC's  approval of the Public Company Accounting Oversight Board
amendments  to AU Section 411, "The Meaning of Present Fairly in Conformity With
Generally  Accepted  Accounting  Principles." The Company is currently reviewing
the  effect,  if  any;  the  proposed  guidance  will  have  on its consolidated
financial  statements.

In  June  2008,  FASB  issued  FSP  EITF  Issue  03-6-1,  "Determining  Whether
Instruments  Granted  in  Share-Based  Payment  Transactions  Are  Participating
Securities"  ("FSP EITF 03-6-1").  FSP EITF 03-6-1 addresses whether instruments
granted  in  share-based payment transactions are participating securities prior
to  vesting  and,  therefore,  need to be included in the earnings allocation in
computing  earnings per share under the two-class method described in paragraphs
60  and  61  of  SFAS  No.  128,  "Earnings  per

<PAGE>
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008, and 2007


Share."  FSP EITF 03-6-1 is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those years.
The  Company  is  currently  reviewing the effect, if any, the proposed guidance
will  have  on  its  financial  statements.

In  September  2008,  FASB issued FSP No. 133-1 and FIN 45-4, "Disclosures about
Credit  Derivatives  and  Certain Guarantees: An Amendment of FASB Statement No.
133  and  FASB Interpretation No. 45; and Clarification of the Effective Date of
FASB Statement No. 161" ("FSP SFAS 133-1 and FIN 45-4").  FSP 133-1 and FIN 45-4
to  require  disclosures  by  sellers  of  credit  derivatives, including credit
derivatives  embedded  in a hybrid instrument.  FSP SFAS 133-1 and FIN 45-4 also
amend  FASB  Interpretation  No.  45,  "Guarantor's  Accounting  and  Disclosure
Requirements  for  Guarantees,  Including Indirect Guarantees of Indebtedness of
Others,"  to  require  an  additional disclosure about the current status of the
payment/performance  risk  of a guarantee.  Further, FSP SFAS 133-1 and FIN 45-4
clarifies the Board's intent about the effective date of FASB Statement No. 161,
"Disclosures  about  Derivative  Instruments  and Hedging Activities."  FSP SFAS
133-1 and FIN 45-4 is effective for reporting periods (annual or interim) ending
after  November 15, 2008.  The adoption of FSP SFAS 133-1 and FIN 45-4 will have
no  impact  on  the  Company's  consolidated  financial  statements.

In  October 2008, FASB issued FSP SFAS No. 157-3, "Determining the Fair Value of
a  Financial  Asset  When  the  Market  for That Asset Is Not Active" ("FSP SFAS
157-3"),  which  clarifies  the  application  of  SFAS  No.  157,  "Fair  Value
Measurements,"  in  a  market  that  is  not  active  and provides an example to
illustrate key considerations in determining the fair value of a financial asset
when  the  market  for  that  financial  asset is not active.  FSP FAS 157-3 was
effective  upon issuance, including prior periods for which financial statements
had not been issued.  The Company is currently reviewing the effect, if any, the
proposed  guidance  will  have  on  its  consolidated  financial  statements.


NOTE 4 - Inventory, Net
-----------------------

Inventory consists of the following:        SEPTEMBER 30,         December 31,
                                            -------------         ------------
                                                2008                  2007
                                                ----                  ----
                                             (UNAUDITED)            (audited)
                                             -----------            ---------
                                                       (In thousands)

      Raw  materials                          $  1,133              $  1,288
      Work-in-process                              196                   193
      Finished  goods                            1,668                 1,818
                                              ---------             ---------
      Total,  net                             $  2,997              $  3,299
                                              =========             =========

Reserves  for excess and obsolete inventory totaled $1,335,000 and $1,350,000 as
of  September  30,  2008,  and  December  31,  2007, respectively, and have been
included  as  a  component  of  the  above  amounts.


<PAGE>
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008, and 2007


NOTE 5 - Bank Indebtedness, Demand Loan and Revolving Line of Credit
--------------------------------------------------------------------

                                                 SEPTEMBER 30,      December 31,
                                                 =============      ============
                                                     2008               2007
                                                 -------------      ------------
                                                  (UNAUDITED)        (audited)
                                                         (In thousands)

Royal Bank of Canada ("RBC")-Bank indebtedness      $    11           $    13
RBC - Demand loan                                     2,925             3,488
Tradition Capital Bank-Revolving line of credit       1,050             1,050
                                                    -------           -------
                                                    $ 3,986           $ 4,551
                                                    =======           =======

a) Royal Bank of Canada
   ---------------------

The  maximum  borrowing under the demand loan facility was Canadian $3.6 million
(U.S.  $3.4  million). RBC increased the borrowing base formula by Canadian $1.0
million  (U.S.  $944,000) in exchange for additional security provided by two of
the  Company's  directors.  Borrowings under the facility are subject to certain
limitations  based on a percentage of eligible accounts receivable and inventory
as  defined  in the agreement. Interest is payable at a rate of RBC's prime rate
(4.75%  at  September  30,  2008),  plus  2.75% per annum. Borrowings under this
facility  are  secured  by  substantially  all  of  the  Company's assets. As of
September  30,  2008,  the  Company  exceeded  its  facilities under the lending
formula  by  approximately $0.7 million (subject to the above limitations) under
the  demand  loan.  RBC  agreed  to  forbear from the exercise of its rights and
remedies  under  the  security  in respect of the indebtedness until October 31,
2008 or earlier in the event of the occurrence of default in accordance with the
Forbearance  Agreement,  which was finalized on May 29, 2008. In accordance with
the  Forbearance  Agreement  the  maximum  borrowings  were  reduced to Canadian
$3,175,000  (U.S.  $3,000,000)  and  the  interest rate was increased from RBC's
prime  rate  plus  2.75%  per  annum  to  RBC's prime rate plus 3.25% per annum.

As  of  October  31,  2008,  the  Forbearance  Agreement  with RBC expired.  On
November 12, 2008, the Company and RBC extended the Forbearance Agreement to May
15,  2009  with  revised  terms  and  conditions.

In  consideration  for  the  guarantees provided by Mr. Murdoch and Mr. Furst to
RBC,  the  Company  paid  a  fee of $43,000, shared between them, paid in twelve
equal  monthly  installments.  As  additional  consideration,  they  received
fully-vested,  two-year warrants to purchase approximately 2.9 million shares of
the  Company's  common  stock, at an exercise price of $0.10 per share. The fair
value  of  these warrants of $120,000 was determined in accordance with SFAS No.
123R  and  beginning  in  June 2006 was taken into income over the period of the
guarantee,  which  was  one year. These guarantees expired in June 2007 and were
subsequently  renewed  in  July  2007  until April 30, 2008. In consideration of
these  guarantee  renewals, Mr. Murdoch and Mr. Furst received a fee of $40,000,
shared  between  them,  paid  in  ten  equal monthly installments. As additional
consideration,  they  received  fully-vested,  two-  year  warrants  to purchase
approximately  7.4  million common shares of the Company at an exercise price of
$0.065 per share. The fair value of these warrants of $164,000 was determined in
accordance  with  SFAS No. 123R and beginning in July 2007 was taken into income
over the period of the guarantee, which was ten months. These guarantees expired
in April 2008 and were subsequently renewed in May 2008 until December 31, 2008.
In consideration of these guarantee renewals, Mr. Murdoch and Mr. Furst received
a fee of $33,000, shared between them, paid in eight equal monthly installments.
As  additional  consideration,  they received fully-vested, two-year warrants to
purchase  approximately  5  million

<PAGE>
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008, and 2007

common  shares  of the Company at an exercise price of $0.10 per share. The fair
value  of  these warrants of $150,000 was determined in accordance with SFAS No.
123R and beginning in May 2008 is being taken into income over the period of the
guarantee,  which  is  eight months. Interest and financing expense recorded was
$56,000  for  the  three-month period ended September 30, 2008, $159,000 for the
nine-months  ended  September  30, 2008. During the three and nine-month periods
ended  September 30, 2007, $50,000 and $100,000, respectively, has been recorded
in  interest  and  financing  expense.


b)  Tradition Capital Bank
    ----------------------

In  December 2006, the Company entered into a secured revolving credit agreement
with  Tradition  Capital Bank. From December 15, 2006, through the expiration of
the  facility  on  June  15,  2007, the Company drew up to a maximum of $550,000
under the facility. Borrowings under this facility were secured by substantially
all  of  the Company's assets in a second position to RBC. In addition, the loan
was  fully  secured  by  personal  guarantees  of  Mr. Murdoch and Mr. Furst. In
consideration  of  these guarantees, Mr. Murdoch and Mr. Furst received a fee of
$14,000,  shared  between them, paid in six equal monthly installments beginning
in  December  2006.  As  additional  consideration, they received fully- vested,
two-year  warrants to purchase approximately 5.2 million shares of the Company's
common  stock, at an exercise price of $0.053 per share. The fair value of these
warrants  of  $91,000  was  determined  in  accordance  with  SFAS  No. 123R and
beginning  in  December  2006  was  taken  into  income  over  the period of the
guarantee,  which  was  six  months.  The credit facility and related guarantees
expired  in June 2007 and were subsequently renewed in July 2007 until April 30,
2008.  In  consideration  of  the  guarantee renewals, Mr. Murdoch and Mr. Furst
received  a  fee  of  $23,000,  shared  between  them, paid in ten equal monthly
installments.  As additional consideration, they received fully-vested, two-year
warrants  to  purchase approximately 4.2 million common shares of the Company at
an  exercise  price  of  $0.065  per  share. The fair value of these warrants of
$94,000  was  determined  in accordance with SFAS No. 123R and beginning in July
2007  was  taken  into  income  over  the period of the guarantee, which was ten
months.

On  September  25,  2007,  Mr. Murdoch and Mr. Furst agreed to provide Tradition
Capital  Bank  additional personal guarantees totaling $500,000, which increased
the  maximum the Company can draw to $1,050,000, until April 30, 2008, under the
same  terms  and conditions as listed above. In consideration of the guarantees,
Mr.  Murdoch  and Mr. Furst received a fee of $15,000, shared between them, paid
in  seven equal monthly installments. As additional consideration, they received
fully-vested,  two-year  warrants  to  purchase approximately 2.5 million common
shares of the Company at an exercise price of $0.10 per share. The fair value of
these  warrants  of  $89,000 was determined in accordance with SFAS No. 123R and
beginning  in  October  2007  was  taken  into  income  over  the  period of the
guarantee,  which  was  seven  months. On April 30, 2008 the above loan facility
expired  and  was  renewed  until  December 31, 2008. Interest is payable at the
reference  rate (Wall Street Journal prime, with an interest rate floor of 5.5%,
currently  5.0%), plus 1.0% per annum. At September 30, 2008, borrowings were at
the  maximum amount available. In consideration of these guarantee renewals, Mr.
Murdoch  and  Mr. Furst will receive a fee of $35,000, shared between them, paid
in  eight equal monthly installments. As additional consideration, they received
fully-vested,  two-year  warrants  to  purchase approximately 5.3 million common
shares of the Company at an exercise price of $0.10 per share. The fair value of
these  warrants  of $157,000 was determined in accordance with SFAS No. 123R and
beginning  in  May  2008  is  being  taken  into  income  over the period of the
guarantee,  which  is  eight months. Interest and financing expense recorded was
$59,000  for  the  three-month period ended September 30, 2008, $187,000 for the
nine-months  ended  September  30, 2008. During the three and nine-month periods
ended  September 30, 2007, $28,000 and $111,000, respectively, has been recorded
in  interest  and  financing  expense.

<PAGE>
SENTRY  TECHNOLOGY  CORPORATION  AND  SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008, and 2007


NOTE 6 -- Accrued Liabilities
-----------------------------
<TABLE>
<CAPTION>
                                                           SEPTEMBER 30,     December 31,
                                                          -------------     ------------
                                                              2008              2007
                                                          -------------     ------------
                                                           (UNAUDITED)       (audited)
                                                            ---------         -------
                                                                  (In thousands)
<S>                                                        <C>               <C>
Accrued salaries, employee benefits and payroll taxes      $     271         $     280
Customer deposit payables                                        325               305
Other accrued liabilities                                        703               954
                                                           ----------        ----------
                                                           $   1,299         $   1,539
                                                           ==========        ==========
</TABLE>

NOTE 7 - Convertible Debenture
------------------------------

On  April  30,  2004,  Sentry  entered  into  a  $2,000,000  secured convertible
debenture  with  Brookfield  Technology  Fund  ("Brookfield"),  an  alternative
investment  fund  established  by Brookfield Asset Management (formerly known as
Brascan  Technology  Fund and Brascan Asset Management, respectively), to invest
in  early  stage,  technology-based  companies  with  high  growth  potential.

Key  terms  of  the  transaction  are  as  follows:

-     Four-year  term.
-     Interest rate of 8% per annum.
-     Redeemable at Sentry's option after 18 months.
-     Conversion price equal to the market price, at time of conversion, less a
      discount of 30% with a maximum conversion price of $0.12 per share.
-     Conversion is at the option of Brookfield when market share price is equal
      to or greater than $0.17 per share or with the approval of Sentry's Board
      of Directors when the market share price is less than $0.17 per share.
-     Sentry will provide most favored pricing to all Brookfield affiliates and
      expects to be a supplier of security and identification products to the
      Brookfield affiliates.
-     Brookfield was issued warrants for 5,000,000 common shares of Sentry,
      priced at $0.15 per share, exercisable anytime up to April 30, 2008.
-     Brookfield is entitled to one seat on Sentry's Board of Directors or will
      participate as an observer.

The convertible debenture is secured by a general security interest over all the
assets  and  properties  of  Sentry.  The  amount is subordinate to the existing
credit  facilities.

On April 11, 2008, Brookfield extended its maturity of the debenture to December
31,  2008.  The  5  million  warrants  that  were originally issued expired.  In
consideration  of  this  renewal,  Brookfield  received  fully- vested, two-year
warrants to purchase 5 million common shares of the Company at an exercise price
of $0.10 per share.  The fair value of these warrants of $150,000 was determined
in  accordance  with SFAS No. 123R and beginning in May 2008 is being taken into
income  over  the  period  of  the  guarantee,  which  is  eight  months.

<PAGE>
SENTRY  TECHNOLOGY  CORPORATION  AND  SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008, and 2007


NOTE  8  --  Related  Party  Transactions
-----------------------------------------

Transactions  between related parties are in the normal course of operations and
are  measured  at  the  exchange  amount,  which  is the amount of consideration
established  and  agreed  to  by  the  related  parties.

Certain  of  Sentry's  key shareholders and directors personally guaranteed bank
debt  to  the  Company.  Please  refer  to  Note  5  for  details.

In  August 2007, Mr. Murdoch agreed to provide a personal guarantee for a Letter
of  Credit  of  $49,350  for  a period of one year in favor of Palm Beach Public
Library  that the Company was unable to obtain on its own in order to complete a
sale  of  the  Company's self-service library systems.  In consideration of this
guarantee  Mr.  Murdoch  received  a  fee of $2,000 paid in twelve equal monthly
installments.  As  additional  consideration, he received fully-vested, two-year
warrants  to  purchase approximately 0.2 million common shares of the Company at
an  exercise  price  of  $0.10  per  share.  The fair value of these warrants of
$10,000  was  determined in accordance with SFAS No. 123R "Share-Based Payment,"
and  beginning  in  August  2007  was  taken  into income over the period of the
guarantee,  which  was  twelve months. This guarantee expired in August 2008 and
was  subsequently  renewed in August 2008 until August 2009. In consideration of
this  guarantee  renewal, Mr. Murdoch will receive a fee of $2,000 paid over the
next  year.  Interest  and  financing  expense  recorded  was  $1,000  for  the
three-month  period  and  $6,000  for  the nine-month period ended September 30,
2008,  respectively.

In  December  2007,  Mr.  Murdoch,  Sentry's  CEO and director, and Mr. Furst, a
Sentry  director,  agreed  to  lend  the  Company $141,000 ($81,000 and $60,000,
respectively)  to  secure a bid that the Company was unable to obtain on its own
to  sell  products  to  an airport facility.  In consideration of the loans, Mr.
Murdoch  and  Mr. Furst received interest for the period of the loan at the Bank
of America's prime rate (7.25%) plus 1% per annum.  During the nine-month period
ended  September  30,  2008,  $1,000  has  been recorded in interest and finance
expense  related  to  the  loans.  The  loans  were  repaid  in  January  2008.


NOTE 9 -- Stock-Based Compensation
----------------------------------

     a)     Stock  Options
            --------------

The  Company's  1997  Stock Incentive Plan of Sentry (the "1997 Plan"), which is
shareholder approved, permits the granting of common share options and shares to
its  employees  for  up  to  6,369,365  shares  of  common  stock as stock-based
compensation.  This plan expired as of January 14, 2007, and as such, there were
no  remaining  shares available for grant under this plan at September 30, 2008.
The plan was renewed on May 18, 2007 (the "2007 Plan"), is shareholder approved,
and permits the granting of common share options and shares to its employees for
up  to  5,000,000 shares of common stock as stock-based compensation.  The stock
option  committee  may  grant  awards to eligible employees in the form of stock
options,  restricted  stock  awards, phantom stock awards, or stock appreciation
rights.  Stock  options  may  be  granted  as  incentive  stock  options  or
non-qualified stock options.  Such options normally become exercisable at a rate
of  20%  per  year over a five-year period and expire ten years from the date of
grant.

There  was  no  cash  received  from  exercise  of  options during the three and
nine-month periods ended September 30, 2008 and the three and nine-month periods
ended  September  30,  2007.

<PAGE>
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008, and 2007


The assumptions used for the specified reporting periods and resulting estimates
of weighted average fair value per share of options granted during those periods
were  as  follows:

The assumptions used for the specified reporting periods and resulting estimates
of weighted average fair value per share of options granted during those periods
were  as  follows:

                                  Three Months Ended         Nine Months Ended
                                      September 30,            September 30,
                                   2008         2007         2008         2007
                                   ----         ----         ----         ----
Risk-free interest rate            2.5%          ---         2.5%         4.82%
Expected dividend yield              0%          ---           0%            0%
Expected lives                   2 YEARS         ---       2 YEARS     2-5 years
Expected volatility                77%           ---          77%           80%


The  following  table represents the Company's stock options granted, forfeited,
or  expired  and  exercised  during  the  nine-months  ended September 30, 2008:
<TABLE>
<CAPTION>
<S>                                       <C>               <C>      <C>            <C>
                                                                      Weighted
                                           Number of      Weighted     Average      Aggregate
                                            Shares        Average     Remaining     Intrinsic
                                          Subject to      Exercise    Contractual     Value
                                           Issuance        Price         Term         ($000)
                                          ----------------------------------------------------

Outstanding as of January 1, 2008          2,057,000       $ 0.10
Granted                                      225,000         0.06
Exercised                                        ---          ---
Forfeited                                   (129,000)        0.16
Expired                                       (3,000)        2.37
                                           ----------      -------
OUTSTANDING AS OF SEPTEMBER 30, 2008       2,150,000       $ 0.09     7.0 YEARS         ---
                                           ==========      ======     =========       =======

EXERCISABLE AS OF SEPTEMBER 30, 2008       1,606,000       $ 0.09     7.0 YEARS         ---
                                           ==========      ======     =========       =======

</TABLE>

The  aggregate  intrinsic  value  of  options  has  been shown as $0 because the
exercise  price  of  outstanding  and  exercisable  option  shares  exceeded the
period-end  market  price  of  the  Company's  common  stock.

The  compensation  cost  recognized  in  income for stock-based compensation was
$9,000  and  $17,000  for  the  three and nine-month periods ended September 30,
2008,  respectively, and $6,000 and $20,000 for the three and nine-month periods
ended  September  30,  2007,  respectively.

As  of  September 30, 2008, there was $36,000 of total unrecognized compensation
cost, net of estimated forfeitures, related to all unvested stock options, which
is expected to be recognized over a weighted average period of approximately 2.2
years.

There  were  225,000 options issued during the nine-month period ended September
30, 2008 with a weighted average estimated fair value of $0.03 per share.  There
were  511,500  options  issued  during the nine-month period ended September 30,
2007,  with  a  weighted  average  estimated  fair  value  of  $0.04  per share.

At  September  30,  2008, options for 4,283,500 common shares were available for
future  grants  under the 2007 Stock Option Plan.  On January 14, 2007, the 1997
Plan expired.  There were no common shares available for future grant under this
1997  Plan.

<PAGE>
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008, and 2007


     b)     Warrants
            --------

As  of  September  30,  2008,  Sentry  has  outstanding  warrants for 35,093,123
(September  30,  2007  -  27,718,123)  common  shares  issued in connection with
various  financing arrangements.  The warrants have exercise prices ranging from
$0.05  to  $0.17  per  share (September 30, 2007 - $0.05 to $0.17 per share) and
expire  from  December  15,  2008,  through  May  1,  2010.


NOTE  10  -  Fair  Value  Measurements
--------------------------------------

Effective  January 1, 2008, the Company adopted "Fair Value Measurement," ("SFAS
157"),  except  as  it  applies  to  the  nonfinancial  assets  and nonfinancial
liabilities  subject to FSP SFAS 157-2. SFAS 157 clarifies that fair value is an
exit  price,  representing the amount that would be received to sell an asset or
paid  to  transfer  a  liability  in  an  orderly  transaction  between  market
participants.  As  such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use in pricing an
asset  or  a  liability.  As  a basis for considering such assumptions, SFAS 157
establishes  a  three-tier value hierarchy, which prioritizes the inputs used in
the  valuation  methodologies  in  measuring  fair  value:

     Level 1 - Observable inputs that reflect quoted prices (unadjusted) for
               identical  assets  or  liabilities  in  active  markets.

     Level 2 - Include  other  inputs  that  are  directly  or  indirectly
               observable  in  the  marketplace.

     Level 3 - Unobservable  inputs  which  are  supported by little or no
               market  activity.

The  fair  value  hierarchy  also  requires  an  entity  to  maximize the use of
observable  inputs  and  minimize  the use of unobservable inputs when measuring
fair  value.

Cash  and  cash  equivalents,  short-term  investments  (Level  1),  accounts
receivable,  bank  indebtedness,  accounts  payable,  accrued  liabilities,
obligations  under  capital  leases,  and  convertible  debenture  (Level 2) are
reflected  in  the  consolidated  balance  sheets  at  carrying  value,  which
approximates  fair  value  due  to  the  short-term nature of these instruments.


NOTE  11  -  Subsequent  Event
------------------------------

As of October 31, 2008, the Forbearance Agreement with RBC expired.  On November
12, 2008, the Company and RBC extended the Forbearance Agreement to May 15, 2009
with  revised  terms  and  conditions.


Item 2.  Management's Discussion and Analysis of Plan of Operation.
-------------------------------------------------------------------

Certain Factors That May Affect Future Results
----------------------------------------------

Information contained or incorporated by reference in this periodic report on
Form 10-Q and in other SEC filings by Sentry contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 which can be identified by the use of forward-looking terminology such
as

<PAGE>
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
September 30, 2008, and 2007


"believes," "expects," "may," "will," "should" or "anticipates" or the negative
thereof,  other  variations thereon or comparable terminology, or by discussions
of  strategy. These forward-looking statements involve certain significant risks
and  uncertainties,  and  actual  results  may  differ  materially  from  the
forward-looking  statements.  For  further details and discussion of these risks
and uncertainties see Sentry Technology Corporation's SEC filings including, but
not limited to, its annual report on Form 10-KSB. No assurance can be given that
future  results  covered by the forward-looking statements will be achieved, and
other factors could also cause actual results to vary materially from the future
results  covered  in  such  forward-looking  statements.  We do not undertake to
publicly  update  or  revise  any  of  our  forward-looking  statements  even if
experience  or future changes show that the indicated results or events will not
be  realized.


Results  of  Operations:
------------------------

Consolidated  revenues were 12% lower in the quarter ended September 30, 2008 as
compared  to  the  quarter  ended September 30, 2007.  For the nine-month period
ended  September  30, 2008 consolidated revenues were 5% higher than in the same
period  of  last year.  Our backlog of orders, which we expect to deliver within
the  next  twelve  months, was $3.4 million at September 30, 2008, a decrease of
24%  as  compared  to  $4.5 million at September 30, 2007, and a 21% increase as
compared  to  $2.8 million at December 31, 2007.  Total revenues for the periods
presented  are  broken  out  as  follows:
<TABLE>
<CAPTION>
<S>                                     <C>        <C>       <C>          <C>         <C>       <C>

                                          Q-3       Q-3        %           9 Mos.      9 Mos.     %
                                         2008       2007     Change         2008       2007     Change
                                         ----       ----     ------         ----       ----     ------
                                         (in thousands)                     (in thousands)

Electronic Article Surveillance (EAS)   $ 1,606    $1,726      (7)        $ 3,769     $ 4,626     (19)
Closed Circuit Television (CCTV)            251       156      61             389         305      28
SentryVision                              1,244     1,341      (7)          4,057       2,611      55
                                        --------   -------    -----       --------    --------   -----
Total sales                               3,101     3,223      (4)          8,215       7,542       9
Service, maintenance and installation       472       838     (44)          1,429       1,615     (12)
                                        --------   -------    -----       --------    --------   -----
Total revenues                          $ 3,573    $4,061     (12)        $ 9,644     $ 9,157       5
                                        ========   =======    =====       ========    ========   =====

</TABLE>

Sales  in  the third quarter of 2008 were 4% lower than the same period in 2007.
For  the  three  and  nine-month periods ended September 30, 2008 domestic sales
were  lower  for  EAS  sales  mainly  due  to weak sales volume at our 51% owned
labeling plant.  International EAS sales were slightly higher in the three-month
period  and  slightly lower in the nine-month period.  In the three-month period
ended  September 30, 2008 we had higher domestic QuickCheck self-service library
sales  offset by lower QuickCheck sales in the nine-month period ended September
30,  2008  compared to 2007.  CCTV produced higher sales in both the three-month
and  nine-month  periods.  SentryVision  international sales were up in both the
three-month  and  nine-month  periods  primarily  due  to a $503,000 sale in the
three-month  period  and total sales of $1,403,000 in the nine-month period to a
dealer  serving  the Mexico City Metro.  Domestic SentryVision sales are down in
both  the  three  and  nine-month  periods  due  to  the  previous year having a
significant  sale to Steve & Barry's of $0.7 million which was not recurring for
this  year.  Service,  maintenance  and installation revenues were lower in both
the  three  and  nine-month  periods due to lower domestic related sales revenue
including  the  non-recurring $0.4 million installation revenue we received from
Steve  &  Barry's  in  the  prior  year.

Cost  of  sales  were  59%  and  57%  of total sales in the three and nine-month
periods  ended  September  30,  2008 as compared to 56% and 55% in the three and
nine-month  periods  ended  September  30,  2007.  This

<PAGE>
SENTRY  TECHNOLOGY  CORPORATION  AND  SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
September 30, 2008, and 2007

increase in the cost of sales percentage is mainly due to lower sales at our 51%
owned  labeling plant as well as an increase in the percentage of total sales to
foreign  dealers.

The  25%  decrease  in customer service expenses in the third quarter of 2008 as
compared  to  the  third quarter of 2007 is primarily due to lower subcontractor
labor  costs  due  to  lower  domestic revenues of installed products. The first
nine-month  period  of  2008  compared  to  the  first nine-month period of 2007
remained  approximately  the  same.  The  Company  is  continuing to use outside
service contractors to supplement our field service employees in order to better
manage  total  customer  service  costs  during  fluctuations in activity levels
between  periods.

Selling, general and administrative expenses were 31% and 24% lower in the three
and  nine-month periods ended September 30, 2008, respectively, when compared to
the  same periods of the previous year.  This decrease is principally the result
of  foreign exchange gains of $141,000 in the three-month period and $217,000 in
the nine-month period ended September 30, 2008 compared to a loss of $255,000 in
the  three-month  period  and  a loss of $592,000 in the nine-month period ended
September  30,  2007  as  well  as  lower  sales salaries, warranty expenses and
freight expenses, offset slightly by higher professional fees.  Foreign exchange
gains  resulted  from  the  strengthening  of  the  U.S. dollar valuation of the
Company's  Canadian  dollar bank loan as well as receivables denominated in U.S.
dollars  from  our  Canadian  subsidiary.

The  decrease  in research and development costs of 14% in the third quarter and
22%  in  the  first  nine-months of 2008 compared to the third quarter and first
nine-months of 2007 is primarily a result of lower salary expenses.  The Company
continues  to  develop  both hardware and software products for its core library
and  traveling  camera  system  markets.

Net  interest  expense  increased  in  the  three  and  nine-month periods ended
September  30,  2008  compared to the same periods in 2007 as a result of higher
average  outstanding  debt.

Non-cash  amortization  of costs related to financing increased in the three and
nine-month  periods  ended  September  30,  2008 compared to the same periods in
2007.  This  is  primarily  a  result of financing costs related to the non-cash
amortization  of  warrants issued as a result of the loan guarantees provided by
the  Company's  directors  as  well  as  amortization  costs  on the convertible
debenture.

The  income  tax expense (recovery) in all periods presented principally results
from  the  taxable  income  of one of our Canadian subsidiaries, which cannot be
offset  by  Sentry's  net  operating  loss  carryforwards.

As  a  result  of the foregoing, Sentry had losses of $204,000 and $1,083,000 in
the  three-months  and  nine-months  ended  September 30, 2008, respectively, as
compared  to  losses  of  $168,000  and  $1,790,000  in  the  three-months  and
nine-months  ended  September  30,  2007.


Liquidity  and  Capital  Resources  as  of  September  30,  2008

At September 30, 2008, we had cash and short-term investments of $504,000 and
total assets of $6,636,000. Our working capital was negative $2,440,000. Even
through we had a loss of $1,083,000 million in the first nine-months of 2008, we
generated net cash from operating activities of $631,000.  This was primarily a
result of the collection of accounts receivable balances as well as receiving
advanced payments of $325,000 from most foreign customers and some domestic
customers. The

<PAGE>
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
September 30, 2008, and 2007


Company's  liquidity  has  primarily  been  supported  by  the guarantees of two
directors,  Mr.  Murdoch  and  Mr.  Furst  to  the  Company's principal lenders.

Cash  used  by investing activities was $153,000 during the first nine-months of
2008  mainly  due  to  changes  in  short-term  investments.

Cash  used  by financing activities was $363,000 during the first nine months of
2008  primarily  due  to  reduced  borrowings  available  under  our  RBC credit
facilities  as  of  September  30, 2008. Borrowing availability under the credit
facilities has been based upon the combined levels of receivables and inventory,
which  were lower in the first nine months of 2008. The extra availability under
the  credit  facility  above  the maximum allowable limit resulted from the $1.0
million  loan  guarantees  provided by our directors as well as RBC allowing the
Company  to exceed the maximum allowable borrowing by an additional $0.7 million
as  of September 30, 2008. The Company entered into a Forbearance Agreement with
RBC  in  May  2008,  extending  the  RBC  bank credit to October 31, 2008. As of
October  31,  2008,  the Forbearance Agreement with RBC expired. On November 12,
2008,  the  Company  and  RBC extended the Forbearance Agreement to May 15, 2009
with  revised  terms  and  conditions.


The  maximum  borrowing under the demand loan facility was Canadian $3.6 million
(U.S.  $3.4 million).  RBC increased the borrowing base formula by Canadian $1.0
million  (U.S.  $944,000) in exchange for additional security provided by two of
the  Company's  directors.  Borrowings under the facility are subject to certain
limitations  based on a percentage of eligible accounts receivable and inventory
as  defined in the agreement.  Interest is payable at a rate of RBC's prime rate
(4.75%  at  September  30,  2008),  plus 2.75% per annum.  Borrowings under this
facility  are  secured  by  substantially  all  of  the Company's assets.  As of
September  30,  2008,  the  Company  exceeded  its  facilities under the lending
formula  by  approximately $0.7 million (subject to the above limitations) under
the  demand  loan.  RBC  agreed  to  forbear from the exercise of its rights and
remedies  under  the  security  in respect of the indebtedness until October 31,
2008 or earlier in the event of the occurrence of default in accordance with the
Forbearance  Agreement, which was finalized on May 29, 2008.  In accordance with
the  Forbearance  Agreement  the  maximum  borrowings  were  reduced to Canadian
$3,175,000  (U.S.  $3,000,000)  and  the  interest rate was increased from RBC's
prime  rate  plus  2.75%  per  annum  to  RBC's prime rate plus 3.25% per annum.

As of October 31, 2008, the Forbearance Agreement with RBC expired.  On November
12, 2008, the Company and RBC extended the Forbearance Agreement to May 15, 2009
with  revised  terms  and  conditions.

In  consideration  for  the  guarantees provided by Mr. Murdoch and Mr. Furst to
RBC,  the  Company  paid  a  fee of $43,000, shared between them, paid in twelve
equal  monthly  installments.  As  additional  consideration,  they  received
fully-vested,  two-year warrants to purchase approximately 2.9 million shares of
the  Company's  common  stock, at an exercise price of $0.10 per share. The fair
value  of  these warrants of $120,000 was determined in accordance with SFAS No.
123R  and  beginning  in  June 2006 was taken into income over the period of the
guarantee,  which  was  one year. These guarantees expired in June 2007 and were
subsequently  renewed  in  July  2007  until April 30, 2008. In consideration of
these  guarantee  renewals, Mr. Murdoch and Mr. Furst received a fee of $40,000,
shared  between  them,  paid  in  ten  equal monthly installments. As additional
consideration,  they  received  fully-vested,  two-year  warrants  to  purchase
approximately  7.4  million common shares of the Company at an exercise price of
$0.065 per share. The fair value of these warrants of $164,000 was determined in
accordance  with  SFAS No. 123R and beginning in July 2007 was taken into income
over  the  period  of  the  guarantee,  which  was

<PAGE>
SENTRY  TECHNOLOGY  CORPORATION  AND  SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
September 30, 2008, and 2007


ten months. These guarantees expired in April 2008 and were subsequently renewed
in  May  2008  until  December  31,  2008.  In  consideration of these guarantee
renewals,  Mr.  Murdoch  and Mr. Furst received a fee of $33,000, shared between
them,  paid  in  eight  equal monthly installments. As additional consideration,
they  received  fully-vested,  two-year  warrants  to  purchase  approximately 5
million  common  shares  of the Company at an exercise price of $0.10 per share.
The  fair  value of these warrants of $150,000 was determined in accordance with
SFAS  No.  123R  and  beginning  in May 2008 is being taken into income over the
period  of  the guarantee, which is eight months. Interest and financing expense
recorded  was  $56,000  for  the  three-month  period  ended September 30, 2008,
$159,000  for  the  nine-months  ended  September 30, 2008. During the three and
nine-month periods ended September 30, 2007, $50,000 and $100,000, respectively,
has  been  recorded  in  interest  and  financing  expense.

In  December 2006, the Company entered into a secured revolving credit agreement
with  Tradition  Capital Bank. From December 15, 2006, through the expiration of
the  facility  on  June  15,  2007, the Company drew up to a maximum of $550,000
under the facility. Borrowings under this facility were secured by substantially
all  of  the Company's assets in a second position to RBC. In addition, the loan
was  fully  secured  by  personal  guarantees  of  Mr. Murdoch and Mr. Furst. In
consideration  of  these guarantees, Mr. Murdoch and Mr. Furst received a fee of
$14,000,  shared  between them, paid in six equal monthly installments beginning
in  December  2006.  As  additional  consideration, they received fully- vested,
two-year  warrants to purchase approximately 5.2 million shares of the Company's
common  stock, at an exercise price of $0.053 per share. The fair value of these
warrants  of  $91,000  was  determined  in  accordance  with  SFAS  No. 123R and
beginning  in  December  2006  was  taken  into  income  over  the period of the
guarantee,  which  was  six  months.  The credit facility and related guarantees
expired  in June 2007 and were subsequently renewed in July 2007 until April 30,
2008.  In  consideration  of  the  guarantee renewals, Mr. Murdoch and Mr. Furst
received  a  fee  of  $23,000,  shared  between  them, paid in ten equal monthly
installments.  As additional consideration, they received fully-vested, two-year
warrants  to  purchase approximately 4.2 million common shares of the Company at
an  exercise  price  of  $0.065  per  share. The fair value of these warrants of
$94,000  was  determined  in accordance with SFAS No. 123R and beginning in July
2007  was  taken  into  income  over  the period of the guarantee, which was ten
months.

On  September  25,  2007,  Mr. Murdoch and Mr. Furst agreed to provide Tradition
Capital  Bank  additional personal guarantees totaling $500,000, which increased
the  maximum the Company can draw to $1,050,000, until April 30, 2008, under the
same  terms  and conditions as listed above. In consideration of the guarantees,
Mr.  Murdoch  and Mr. Furst received a fee of $15,000, shared between them, paid
in  seven equal monthly installments. As additional consideration, they received
fully-vested,  two-year  warrants  to  purchase approximately 2.5 million common
shares of the Company at an exercise price of $0.10 per share. The fair value of
these  warrants  of  $89,000 was determined in accordance with SFAS No. 123R and
beginning  in  October  2007  was  taken  into  income  over  the  period of the
guarantee,  which  was  seven  months. On April 30, 2008 the above loan facility
expired  and  was  renewed  until  December 31, 2008. Interest is payable at the
reference  rate (Wall Street Journal prime, with an interest rate floor of 5.5%,
currently  5.0%), plus 1.0% per annum. At September 30, 2008, borrowings were at
the  maximum amount available. In consideration of these guarantee renewals, Mr.
Murdoch  and  Mr. Furst will receive a fee of $35,000, shared between them, paid
in  eight equal monthly installments. As additional consideration, they received
fully-vested,  two-year  warrants  to  purchase approximately 5.3 million common
shares of the Company at an exercise price of $0.10 per share. The fair value of
these  warrants  of $157,000 was determined in accordance with SFAS No. 123R and
beginning  in  May  2008  is  being  taken  into  income  over the period of the
guarantee,  which  is  eight months. Interest and financing expense recorded was
$59,000  for  the  three-month period ended September 30, 2008, $187,000 for the

<PAGE>
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
September 30, 2008, and 2007


nine-months  ended  September 30, 2008.  During the three and nine-month periods
ended  September 30, 2007, $28,000 and $111,000, respectively, has been recorded
in  interest  and  financing  expense.

In  August 2007, Mr. Murdoch agreed to provide a personal guarantee for a Letter
of  Credit  of  $49,350  for  a period of one year in favor of Palm Beach Public
Library  that the Company was unable to obtain on its own in order to complete a
sale  of  the  Company's self-service library systems.  In consideration of this
guarantee  Mr.  Murdoch  received  a  fee of $2,000 paid in twelve equal monthly
installments.  As  additional  consideration, he received fully-vested, two-year
warrants  to  purchase approximately 0.2 million common shares of the Company at
an  exercise  price  of  $0.10  per  share.  The fair value of these warrants of
$10,000  was  determined in accordance with SFAS No. 123R "Share-Based Payment,"
and  beginning  in  August  2007  was  taken  into income over the period of the
guarantee,  which  was  twelve months. This guarantee expired in August 2008 and
was  subsequently  renewed in August 2008 until August 2009. In consideration of
this  guarantee  renewal, Mr. Murdoch will receive a fee of $2,000 paid over the
next  year.  Interest  and  financing  expense  recorded  was  $1,000  for  the
three-month  period  and  $6,000  for  the nine-month period ended September 30,
2008,  respectively.

In  December  2007,  Mr.  Murdoch,  Sentry's  CEO and director, and Mr. Furst, a
Sentry  director,  agreed  to  lend  the  Company $141,000 ($81,000 and $60,000,
respectively)  to  secure a bid that the Company was unable to obtain on its own
to  sell  products  to  an airport facility.  In consideration of the loans, Mr.
Murdoch  and  Mr. Furst received interest for the period of the loan at the Bank
of America's prime rate (7.25%) plus 1% per annum.  During the nine-month period
ended  September  30,  2008,  $1,000  has  been recorded in interest and finance
expense  related  to  the  loans.  The  loans  were  repaid  in  January  2008.

On April 11, 2008, Brookfield extended its maturity of the debenture to December
31,  2008.  The  5  million  warrants  that  were originally issued expired.  In
consideration  of  this  renewal,  Brookfield  received  fully- vested, two-year
warrants to purchase 5 million common shares of the Company at an exercise price
of $0.10 per share.  The fair value of these warrants of $150,000 was determined
in  accordance  with SFAS No. 123R and beginning in May 2008 is being taken into
income  over  the  period  of  the  guarantee,  which  is  eight  months.

We  will require positive cash flows from operations to meet our working capital
needs  over  the  next  twelve months.  The Company continued to incur operating
losses  through  the  first nine months of 2008.  This has limited the Company's
ability  to  secure additional bank financing. With the uncertainty of continued
financing  the  Company has continued to institute plans to increase its revenue
base  as  well  as  preserve  its  cash  and  to  reduce  operating  expenses.

We  anticipate  revenue  growth  in new and existing markets. We are striving to
continue  to  improve our gross margins and control our selling expenses and our
general  and  administrative  expenses. There can be no assurance, however, that
changes in our plans or other events affecting our operations will not result in
accelerated  or  unexpected  cash requirements, or that we will be successful in
achieving  positive  cash  flow  from operations or obtaining adequate financing
through  any of our existing credit facilities. Our future cash requirements are
expected  to  depend on numerous factors, including, but not limited to: (i) the
ability  to  generate  positive  cash  flow from operations; (ii) the ability to
raise  additional  capital  or  obtain  additional financing; and (iii) economic
conditions.  In  the event that sufficient positive cash flow from operations is
not  generated,  we  will seek additional financing to satisfy current operating
cash  flow  deficiencies.

<PAGE>
SENTRY  TECHNOLOGY  CORPORATION  AND  SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
September 30, 2008, and 2007


There  can be no assurance, however, that additional financing will be available
on  terms  that are satisfactory to the Company, or that any such financing will
be  sufficient  to  provide  the  full  amount  of  funding  necessary.


Related  Party  Transactions
----------------------------
Certain  of  Sentry's  key shareholders and directors personally guaranteed bank
debt  to  the  Company.  Please  refer  to  the  Liquidity and Capital Resources
section  for  details.

In  August 2007, Mr. Murdoch agreed to provide a personal guarantee for a Letter
of  Credit  of  $49,350  for  a period of one year in favor of Palm Beach Public
Library  that the Company was unable to obtain on its own in order to complete a
sale  of  the  Company's self-service library systems.  In consideration of this
guarantee  Mr.  Murdoch  received  a  fee of $2,000 paid in twelve equal monthly
installments.  As  additional  consideration, he received fully-vested, two-year
warrants  to  purchase approximately 0.2 million common shares of the Company at
an  exercise  price  of  $0.10  per  share.  The fair value of these warrants of
$10,000  was  determined in accordance with SFAS No. 123R "Share-Based Payment,"
and  beginning  in  August  2007  was  taken  into income over the period of the
guarantee,  which  was  twelve months. This guarantee expired in August 2008 and
was  subsequently  renewed in August 2008 until August 2009. In consideration of
this  guarantee  renewal, Mr. Murdoch will receive a fee of $2,000 paid over the
next  year.  Interest  and  financing  expense  recorded  was  $1,000  for  the
three-month  period  and  $6,000  for  the nine-month period ended September 30,
2008,  respectively.

In  December  2007,  Mr.  Murdoch,  Sentry's  CEO and director, and Mr. Furst, a
Sentry  director,  agreed  to  lend  the  Company $141,000 ($81,000 and $60,000,
respectively)  to  secure a bid that the Company was unable to obtain on its own
to  sell  products  to  an airport facility.  In consideration of the loans, Mr.
Murdoch  and  Mr. Furst received interest for the period of the loan at the Bank
of America's prime rate (7.25%) plus 1% per annum.  During the nine-month period
ended  September  30,  2008,  $1,000  has  been recorded in interest and finance
expense  related  to  the  loans.  The  loans  were  repaid  in  January  2008.


Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of changes in the value of market risk sensitive
instruments caused by fluctuations in interest rates, foreign exchange rates and
commodity  prices.  Changes  in  these  factors  could cause fluctuations in the
results of our operations and cash flows. In the ordinary course of business, we
are primarily exposed to foreign currency and interest rate risks. We do not use
derivative  financial  instruments  in  connection  with  these commodity market
risks.


Item  4T.  Controls  and  Procedures

(a)  Evaluation  of  Disclosure  Controls  and  Procedures

Our  Chief Executive Officer and our Principal Financial Officer evaluated, with
the  participation  of  our  management,  the  effectiveness  of  our disclosure
controls  and  procedures  as of the end of the period covered by this Quarterly
Report  on Form 10-Q.  As of September 30, 2008, our Chief Executive Officer and
our  Principal  Financial  Officer  concluded  that  our disclosure controls and
procedures,  as  defined  in  Securities  Exchange  Act  Rule  13a-15(e),  were
effective.

<PAGE>
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
PART II  - OTHER INFORMATION
September 30, 2008, and 2007


Our  disclosure  controls and procedures have been formulated to ensure (i) that
information  that  we are required to disclose in reports that we file or submit
under  the  Securities Exchange Act of 1934 were recorded, processed, summarized
and  reported  within  the  time  periods  specified  in Securities and Exchange
Commission  rules  and  forms  and  (ii)  that  the  information  required to be
disclosed by us is accumulated and communicated to our management, including our
Chief  Executive  Officer  and  Principal  Financial Officer, as appropriate, to
allow  timely  decisions  regarding  required  disclosures.

(b)  Changes  in  Internal  Controls  over  Financial  Reporting

There  was  no  change  in  our  internal  controls over financial reporting (as
defined  in  Rules  13a-15(f)  and  15d-15(f) under the Exchange Act) during the
third  quarter  of  2008 covered by this Quarterly Report on Form 10-Q that have
materially affected, or are reasonably likely to materially affect, our internal
controls  over  financial  reporting.


PART II  - OTHER INFORMATION

Item 6 - Exhibits

     (a)     Exhibits:

             10.1 - Forbearance  Agreement  Extension, dated November 12, 2008,
                    by and among Royal Bank of Canada, Sentry Technology Canada
                    Inc., Sentry Technology Corporation and Custom  Security
                    Industries  Inc.

             31.1 - Certification by the Chief Executive Officer Pursuant to
                    Rule 13a-14(a)/15d-14(a).

             31.2 - Certification by the Principal Financial Officer Pursuant
                    to Rule 13a-14(a)/15d-14(a).

             32.1 - Certification by the Chief Executive Officer Pursuant to 18
                    U.S.C. Section 1350 Adopted Pursuant to Section 906 of the
                    Sarbanes-Oxley Act of 2002.***

             32.2 - Certification by the Principal Financial Officer Pursuant to
                    18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of
                    the Sarbanes-Oxley Act of 2002.***

             ***    In  accordance  with Item 601(b)(32)(ii) of Regulation S-K,
                    this exhibit shall not be deemed "filed" for the purposes of
                    Section 18 of the Securities and Exchange  Act of 1934 or
                    otherwise subject to the liability of that section, nor
                    shall it be deemed incorporated by reference in any filing
                    under the Securities Act  of  1933  or  the  Securities
                    Exchange  Act  of  1934.



<PAGE>
SENTRY TECHNOLOGY CORPORATION AND SUBSIDIARIES
SIGNATURE
September 30, 2008, and 2007


SIGNATURE

Pursuant  to  the  requirements  of the Securities and Exchange Act of 1934, the
registrant  had  duly  caused  this  report  to  be  signed on its behalf by the
undersigned  thereunto  duly  authorized.

                              SENTRY TECHNOLOGY CORPORATION
                              -----------------------------


Date:  November 14, 2008      By:   /s/JOAN E. MILLER
       -----------------            ----------------------------------------
                                    Joan E. Miller, Vice President - Finance
                                      and Treasurer
                                    (Principal Financial and Accounting Officer)


<PAGE>